Michigan

Biofuels boom said to be going bust

Ethanol and other biofuels have been touted as key ingredients in reducing America's dependence on Middle East oil. (I say "Middle East" instead of "foreign" because the United States imports more oil from Canada than any other country, and we seem to be OK with that.)

But the biofuel boom is running dry because of low gasoline prices, the recession, a biofuel supply glut and other factors, the Wall Street Journal reports.

Two-third of biodiesel production now sits unused, according to the National Biodiesel Board, which promotes the use of biodiesel in trucks and factories. And delays in writing government rules for the increased use of biodiesel, and ethanol in cars and trucks, are hurting those industries, the Journal says.

The business models for most biofuel companies were predicated on a much higher price of crude oil, making biofuels more attractive. A government-guaranteed market was also central to business plans.

But once blending mandates were postponed, oil prices plunged and the recession crushed fuel demand, many biodiesel companies started operating in the red. Even ethanol producers, which have enjoyed government subsidies and growing federal requirements to blend it into gasoline, have been operating at a loss over the past year. Numerous established producers have filed for Chapter 11 bankruptcy-court protection.

Nevertheless, Texas oil refinery giant Valeo Energy Corp. is jumping into the ethanol production business. Valeo said it's doing so as a hedge against possibly rising commodity prices and to meet a federal law requiring an increased use of ethanol in vehicles.

A 2007 law requires the use of 36 billion gallons of biofuels by 2022, an amount equal to about 25 percent of annual U.S. gasoline consumption.

But many biofuel producers are going bankrupt and having difficulty finding start-up money, the Journal says.